There is a widespread belief that the era in which we live has, for decades, become a capitalist era par excellence and that its merely material values, swinging between profit and loss, have penetrated into the various details of our daily lives to the point where higher ethical values such as integrity and credibility have vanished in favor of material reckonings. Is this belief absolutely correct? I mean, can the market flourish by relying solely on abstract material values without a moral benchmark that standardizes commercial relationships between institutions and individuals or between institutions themselves?

Let us consider the problem from the perspective of a simple and complex question at the same time.  What remains of market values if a fundamental moral value such as trust vanishes?

From a social perspective, we can intuitively acknowledge that trust is the basic guarantor in human relationships between individuals, and more importantly, it was the foundation on which man built the most important institution in the history of civilization, namely, the family. I believe that the same applies to the world of finance and business, as confidence in business relationships has been the first condition for buying and selling since time immemorial.

Today, in the era of large commercial institutions and giant companies (public joint stock companies, for example), confidence becomes a value without which an organization cannot stand, as confidence can be considered as “moral capital,” which we absolutely sometimes express with an alternative word, “reputation.” This brief summary of the close mutual connection between trust and market vitality proves to us conclusively the connection between ethics and trade, even from a utilitarian, pragmatic standpoint, which means that our materialistic age is not completely materialistic as we imagine.

Let us shed intense light on the Omani market, specifically on the capital market sector, which is based on a four-party network comprising companies, accounting firms, investors and the Financial Services Authority, which is a supervisory and regulatory umbrella for this network. The “chemical” bond, so to speak, between these four parties is one word that is “trust”!

 

There is no doubt that building sustainable trust with investors is an effort that over time has turned into an industry called “marketing.” This requires a long period of cooperation based on credibility and integrity through the commitment of the companies listed on the stock exchange to accurately disclose their financial statements and material information that is of interest to the external entities and helps investors make decisions. This approach is what makes investors feel confident in the company's ability to manage the capital in a way that ensures investment success. Just as trust requires time and effort to build, on the other hand, it is a feeling that quickly becomes disturbed simply because investors feel any doubt about the accuracy of the data provided by the company, which may create a state of suspicion, or what we might call here a “crisis of confidence,” which may worsen if the company fails to address.

 

But the issue is not devoid of paradoxes, as overconfidence is also an important factor in loss in the stock market. We are not only talking here about the mutual trust between the company and the traders, but we are also talking about the confidence of the traders, themselves, in their financial skills in the field of investment, that is, self-confidence. This often happens with novice traders who are new to the market, as if there is an inverse relationship between experience and confidence.  In fact, inexperienced people are the most overconfident traders. This is revealed by a survey of the US Securities Commission, which states that 64% of traders believe that their investment skills are “high”, while 46% believe that they have enough confidence to act based on their financial skills alone. What is interesting is that the largest percentage of this category is among younger traders. This is what we can call adverse confidence, which is a feeling of confidence that is not based on objective foundations, nor does it depend on a close scrutiny of market indicators and financial statements, but rather it is often driven by the influence of the herd.

 

Salim Al Rahbi